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MARKET INSIGHT

Should markets take note of cyberattacks?

TOP LINE

Cyberattacks by state and non-state actors have increased in sophistication and quantity.
We see a persistent risk of attacks on business-critical infrastructure and major elections — and would worry particularly about a nation state attacking the U.S.

Reason for concern

Increased internet-connected devices and availability of open source code have lowered the barriers to entry for cyber actors, leading to increased attacks.
Cyberattacks are increasingly becoming part of the arsenal of nation states. For example, North Korea’s cyber capabilities are growing in scale and sophistication.

Many companies have witnessed sharp share price declines after disclosing cyberattacks in recent years.
Attacks have typically targeted companies with large amounts of personal data.

Market talk of cyberattacks has edged down, making the potential market impact bigger.

BlackRock Geopolitical Risk Indicator

SOURCES

Sources: BlackRock Investment Institute, with data from Thomson Reuters. Data as of December 14, 2018.
Notes: We identify specific words related to this geopolitical risk and use text analysis to calculate the frequency of their appearance in the Thomson Reuters Broker Report and Dow Jones Global Newswire databases as well as on Twitter.
We then adjust for whether the language reflects positive or negative sentiment, and assign a score. A zero score represents the average BGRI level over its history from 2003 up to that point in time.
A score of one means the BGRI level is one standard deviation above the average. We weigh recent readings more heavily in calculating the average.
The BGRI’s risk scenario is for illustrative purposes only and does not reflect all possible outcomes as geopolitical risks are ever-evolving.

BOTTOM LINE

We find limited market attention to the rising risk of major cyberattack, indicating its occurrence could have a high impact on global equities.
Potential market implications of cyberattacks could include a selloff in global risk assets as investors flee to perceived safe haven assets. At-risk industries include utilities, energy and defense companies.

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This story originally appeared in BlackRock Geopolitical Risk Dashboard on December 7, 2018

Correlation between U.S. equity and 10-year Treasury returns, 2004-2019

SOURCES

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index.
Sources: BlackRock Investment Institute, with data from Thomson Reuters, January 2019.
Notes: The line shows the correlation of daily returns between the MSCI USA Index (representing U.S. equities) and the benchmark 10-year U.S. Treasury over a one-year rolling period (256 trading days). The dot shows the correlation of returns over the last 90 days.

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